Currently, Bulgaria is among a small number of EU member states that lacks the concept of contracts for difference (CfD). So far, the country had a feed in tariff as a mechanism to subsidise renewable energy producers who meet legislative requirements. Given that feed in tariffs are an outdated tool, contracts for guarantees were introduced.
Having in mind, the current realities of the renewable energy market, including anticipated offshore renewable energy projects, Bulgarian lawmakers came to the conclusion that the country needs CfDs to:
- Secure the viability of a project;
- Monitor the prices;
- Manage competitive bids; and
- Secure the sustainability of the Bulgarian electricity sector.
As a result, lawmakers included CfDs in the draft act Energy from Renewable Sources in Maritime Space Act (the “Draft Act”). It has been subject to discussions in parliament and by the public on three different occasions, so far. The Draft Act is adopted at first hearing by parliament, but even when adopted it will be questionable whether CfDs will apply to main energy legislation, relating to renewable projects and new nuclear power developments.
The CfD is based on the difference between the market price and an agreed “strike price”. If the strike price is higher than the market price, the Electricity System Security Fund (ESSF) must pay the renewable energy producer the difference between the strike price and the market price. If the market price is higher than the agreed strike price, the renewable energy producer must repay the ESSF the difference between the market price and the “strike price”.
Until 2017, CfDs existed only in the UK. Today, Bulgaria’s neighbours, Greece and Romania, use CfDs. In 2023, the Romanian government established a general legal framework for the implementation and operation of the CfD support mechanism related to onshore and offshore wind resources, solar photovoltaic resources, hydro resources, nuclear resources, hydrogen, and energy storage systems.
At the end of 2023, the Greek energy regulator published a call for the country's second energy storage tender, which was scheduled to take place in February 2024. Winning tenders in Greece's energy storage programme will receive CfDs, which provide a guaranteed income for ten years at capped prices.
According to the Draft Act, the tariffs, timeframe, and payment mechanism under the CfD will be included in the concession agreement. The CfD will be sealed between the concessionaire and ESSF, and the price under the CfD will be the minimum price guaranteed by the ESSF for the purchase of electricity generated by an offshore farm.
The three draft acts of Bulgaria’s Energy from Renewable Sources in Maritime Space Act include CfDs, but the Bulgarian Energy Act and Renewable Energy Act do not yet include them. Given that Bulgaria is heading towards development of large-scale clean energy projects, including a nuclear project, CfDs could be very useful, acting as a support scheme to incentivise investment in energy production assets with a high upfront cost and a tool to ensure stable prices for a long period. Hence, it stands to reason that CfDs should be included in the Bulgarian Energy Act to cover both renewable and new nuclear energy builds.
For more information on the potential use of CfDs in Bulgaria’s energy sector, contact your CMS client partner or these CMS experts: Kostadin Sirleshtov, Denitsa Dudevska and Lyubomira Tanchovska.
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